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Real Poverty Really Did Rise During Recent Recession Print
Written by Shawn Fremstad   
Thursday, 13 December 2012 11:00

Casey Mulligan digs himself in deeper with a follow-up post on his argument that: 1) the expansion of social insurance programs in response to the recession was a big problem because it "erased" unemployed American’s incentives to work; and 2) the best evidence of this is that the individual poverty rate, when measured using one of several experimental poverty measures, rather than the official measure, did not rise between 2007 and 2011.

There are just a few teensy problems with his argument. I’ll focus here on his assumption that poverty did not rise. The chart below tracks the poverty, using the official and two experimental measures, from 2005 to 2011 for people 18-64. I focus on working-age adults because they are the group that seems most relevant when it comes to incentives to work. 

The chart shows that poverty really did increase between 2007 and 2011 for working-age adults. The darker olive green line (second from top) is the poverty rate using the experimental measure Mulligan points to in support of his argument—as you can see, it’s higher in 2011 than in 2007.

off-exp-poverty-rates-measures-2012-12

Similarly, the top-most green line uses another experimental poverty measure, one that includes what I think is a slightly better treatment of health care needs. This measure also shows an increase in poverty.

So, if work incentives are what you care about and you like these experimental measures, poverty, for the relevant age group, increased between 2005-2011.

Read more...

 

 
Nicholas Kristof Bravely Urges Congress to Cut Supplemental Security for Children with Severe Disabilities Print
Written by Shawn Fremstad   
Monday, 10 December 2012 11:45

In Sunday’s New York Times, Nicholas Kristof tells us that he hopes “budget negotiations in Washington may offer us a chance to take money from SSI [Supplemental Security for low-income children with severe disabilities] and invest it in early childhood initiatives.” In essence, we need destroy an effective social insurance program for children with severe disabilities in order to … Save the Children!

In the real world, these two things — basic economic supports for low-income parents caring for severely disabled children and educational initiatives — are complementary. As Rebecca Vallas and I have documented, in papers for the National Academy of Social Insurance and the Center for American Progress, the data show that Supplemental Security reduces family economic insecurity and supports parents’ efforts to best care for their severely disabled children.

But in Kristof’s World, which based on his opinion piece, appears to be located in the small, all-white and staunchly Red-voter Breathitt County in rural Kentucky, economic support for parents caring for disabled children and early childhood programs only work at cross purposes. Citing anecdotal evidence from a sample of one person living there as well as the testimony of a long-standing critic of Supplemental Security who has proposed block granting it, Kristof sensationally claims that parents are “profiting from children’s illiteracy” and pulling their kids out of literacy classes in order to keep them disabled and eligible for Supplemental Security.

Of course, there is a venerable traditional of mainstream journalists spreading folkloric urban (and now rural) myths about Supplemental Security. The cycle is well-established—first, mainstream journalists claim that parents are “coaching their children” to appear disabled (prominent in the 1990s) or that parents are medicating their children to make them seem disabled (the most recent scare pre-Kristof), then investigators at GAO, SSA, and other places study the issue empirically rather than just relying on a few anecdotal tales and find that the claims are unfounded. So, for example, with the most recent medication scare, GAO found that children who took medication were actually less likely to qualify for SSI than those who did not. Meanwhile, resources and attention are diverted from focusing on the real-world ways we could make programs like Supplemental Security even more effective for disabled kids and their parents. And so it goes.

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The Nonsense About a Demographic Crisis Print
Written by Dean Baker   
Saturday, 08 December 2012 23:45

One of themes that recurs endlessly in news coverage is that the United States and other countries face a disastrous threat to their living standards as a result of a falling ratio of workers to retirees. This is one that can be easily dismissed with some simple arithmetic.

A falling ratio of workers to retirees means that a larger chunk of what each worker produces must be put aside to a support the retired population. (Btw, this is true regardless of whether or not we have a Social Security or Medicare system. The only issue is whether retirees are able to maintain something resembling normal living standards.) However, that does not imply that the working population must see a drop in their living standards.

Fans of arithmetic might note that the ratio of workers to retirees fell from 5 to 1 in the early sixties to 3 to 1 in the early 90s. This sharp drop in the ratio of workers to retirees did not prevent both workers and retirees from enjoying substantial improvements in living standards over this period. The reason is that productivity growth, what each workers produces in an hour of work, swamped the impact of a falling ratio of workers to retirees.

That will also be the case as the ratio of workers to retirees falls from the current 3 to 1 to a bit under 2 to 1 over the next 23 years under any plausible assumption about productivity growth. The chart below compares the impact of the decline in the ratio of workers to retirees in reducing the living standards with the impact of productivity growth in raising living standards, assuming that the average retiree consumes 85 percent as much as the average worker.

living-standards-2012-2035

Source: Author's calculations.

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Labor Market Policy Research Reports, December 1 – 7, 2012 Print
Written by Mark Azic   
Friday, 07 December 2012 16:11

Here’s a roundup of labor market research reports released over the past week:


Employment Policy Institute

Employer-Sponsored Health Insurance Coverage Continues to Decline in a New Decade
Elise Gould

Green ‘Sequester’ is Already Costing U.S. Jobs
Josh Bivens


Employment Policy Research Network

How Youth Are Put at Risk by Parents’ Low-Wage Jobs
Lisa Dodson and Randy Albelda

 
Some Politicians Were Not Paying Attention in Class Print
Written by Dawn Lobell   
Friday, 07 December 2012 13:56

This holiday season, CEPR decided that the best gift we could give would be to offer a free Econ 101 class to all those in need. And since there are so many in need, we had a hard time deciding where to begin.

Alan Simpson in class


We decided to start with the deficit hawks, that group of powerful elites who have continuously misled the public, the press and the policymakers on the true nature of U.S. debt (while also convincing millions of Americans that Social Security is the cause of large deficits and therefore needs to be cut).

With your help, we can teach the likes of Alan Simpson, Erskine Bowles, Peter Peterson, and the rest of the class of 2013 these basic economic concepts:

       And, last but not least:

Your donation will help us to continue to push back against the misinformation and spin that make up most of the media coverage of these and a host of other economic issues. Click here to help support CEPR’s research, analysis, media and outreach.

And most importantly, our educational programs. This holiday season, help us send them back to school.

Thanks for your support,
Dean, Mark and CEPR Staff

 
Unemployment Falls, But Slow Job Growth Mixed With Deficit Reduction Could Make for an Even Slower Recovery Print
Written by CEPR   
Friday, 07 December 2012 12:45

The unemployment rate fell to 7.7 percent in November, its lowest level since December of 2008. However, the immediate cause was a drop of 350,000 in the size of the labor market as reported employment actually fell by 122,000, according to the Bureau of Labor Statistics' latest employment report. The establishment survey reported job growth of 146,000, but with growth in the prior two months revised downward by 49,000, this brings the average over the last three months to 139,000. This means the economy is creating jobs at a rate that is a bit faster than what is needed to keep pace with the growth of the labor market.

Retail was the biggest job gainer in November, adding 53,000 jobs in November, 33,000 of which were in clothing. After showing little change for the prior three years, the retail sector has added 140,000 jobs over the last three months, with clothing being responsible for almost half (68,000) of these jobs. Some of these gains are almost certainly the result of changing seasonal patterns with retailers pulling forward holiday hiring. That suggests weaker growth going forward. The November jobs report show pretty much the same picture as what we have been seeing over the last six months: At the current pace, we would not see the economy returning to full employment for another decade, perhaps longer if there were to be severe deficit reduction as a result of the current negotiations between President Obama and Congress.

For a more in-depth analysis, check out the latest Jobs Byte.

 
Santorum’s Three Things to Avoid Poverty: The Very Serious Person’s Version of Makers vs. Takers Print
Written by Shawn Fremstad   
Wednesday, 05 December 2012 16:30

­Ross Douthat writes: “Rick Santorum’s … campaign trail riff about how much people improve their odds of staying out of poverty just by graduating from high school, taking full-time work and (above all) getting married before having kids has pretty solid data behind it.” (Santorum’s specific argument, as he put it in his RNC speech, was that “if you don’t do these three things you’re 38 times more likely to end up in poverty” compared with people who do all three of them.) 

Actually, Santorum’s three-things argument is a gross distortion of economic insecurity in the United States. One designed, much in the same way as the infamous makers vs. takers argument (which Santorum also obliquely referenced in his speech), to divide Americans and blame working-class people for being economically insecure.

Let’s review some of the facts:

  1. The three-things argument implies that most adults living in poverty didn’t bother to graduate from high school. However, if we look at actual data, as I did in this post, it turns out that the vast majority of adults with below-poverty incomes—7 out of every 10—are high school graduates. And more than one out of every three have a college degree or some education beyond high school. One of the more notable things about poverty trends since the 1970s—and something you never hear from Very Serious People—is that poverty has remained high in recent decades despite a large increase in educational attainment. As a result, people living below the poverty line today are better educated than ever —in 1979, only about 4 in 10 had a high school degree.

  2. The three-things argument implies that most parents of children living below the poverty line aren’t married. But, as I recently detailed, about 1 out of every 2 are, um, married. Only 39 percent of parents in poverty have never been married. A related point here: the argument implies that it is marriage before having a child that matters most, but we know from other research that young mothers who marry shotgun style have high divorce rates, and they and their children often end up worse off than young mothers who don't rush to get married. As demographer Andrew Cherlin has argued, the best advice to give young people isn’t “get thee married!”, it’s slow down when it comes to family formation, even if that means not rushing into marriage or remarrying if you’re a single parent.

  3. Because it has never been adjusted for increases in typical living standards, the federal poverty line has “defined deprivation down” over the last several decades. This skews our picture of poverty in a way that plays into makers vs. takers arguments like Santorum’s three things. If we use a contemporary poverty line, one adjusted to equal the same percentage of median income as the original poverty line (about $34,000 for a family of four), the already high share of adults in poverty who have high school diplomas and/or are married increases even more. 

  4. Among the most relevant and pressing poverty risks today is the decline in middle-class jobs. This isn’t just an individual risk, it’s one that affects the health of our entire economy—when workers aren’t compensated adequately to spend enough on the basics, our whole economy suffers. Very Serious People should spend more time worrying about the impact that the decline of labor unions has had on families and less time worrying about marital unions.

  5. Another especially relevant and pressing poverty risk today involves raising children. Married, middle-aged people are not magically protected from this risk. As I’ve shown, among married prime-age adults, those caring for children are 56 percent more likely to be living below $34,000 (the contemporary poverty line), than those not caring for children. There are more impoverished, married parents with children in this age group (5.7 million) than there are people who haven’t done any of Santorum’s three things. So, maybe Very Serious People should spend more time thinking about them.

  6. Finally, Bob Dole’s appearance on the Senate floor yesterday, in an unsuccessful attempt to get more than a handful of conservatives to support the Convention on the Rights of Persons with Disabilities, reminded me of the extent to which Very Serious People here in D.C. don’t take disability into account when talking about poverty. According to Census annual poverty data for 2011, adults with disabilities are more than twice as likely to be impoverished as non-disabled adults. But at a recent Brookings Institute event on the 2011 poverty data, marriage was mentioned seven times, while disability was never mentioned. (For more on the poverty-disability connection, see my 2009 paper).
Read more...

 

 
Labor Market Policy Research Reports, November 17 – 30, 2012 Print
Written by Mark Azic   
Monday, 03 December 2012 16:00

Here's a roundup of labor market research reports released over the past two weeks:


Center for American Progress

Workers Deserve Equal Access to Paid Leave and Workplace Flexibility
Sarah Jane Glynn and Jane Farrell

Working Parents’ Lack of Access to Paid Leave and Workplace Flexibility
Sarah Jane Glynn

Latinos Least Likely to Have Paid Leave or Workplace Flexibility
Sarah Jane Glynn and Jane Farrell


Center for Economic Policy and Research

More Good Jobs
Shawn Fremstad

Debt, Deficits, and Demographics: Why We Can Afford the Social Contract
Dean Baker


Demos

State Guaranteed Retirement Accounts
Teresa Ghilarducci, Robert Hiltonsmith, Lauren Schmitz

Retail’s Hidden Potential: How Raising Wages Would Benefit Workers, the Industry and the Overall Economy
Catherine Ruetschlin

Read more...

 

 
Young, Educated and Jobless in America? Print
Written by John Schmitt   
Monday, 03 December 2012 15:15

Today's New York Times has a piece by Steven Erlanger on the "Young, Educated and Jobless in France" that gets most of the facts right, but still might leave its readers with the wrong idea about the real labor-market challenges facing Europe and the United States.

The story focuses on the plight of young, college graduates in France (and several other European countries) who have been unable to find work despite their college degrees and other postsecondary training.

The initial focus is on young people (15-29 year olds) who are unemployed. But, many young people are still in school, which can make interpreting official unemployment rates tricky. (For a discussion of why this is the case, see this article that David Howell and I wrote for The American Prospect back in 2006.)

Erlanger doesn't acknowledge the problems with the unemployment rate when applied to young people, but he does introduce a much better measure of labor-market performance for young people, the NEET:

"[In addition to the unemployed] There is another category: those who are 'not in employment, education or training,' or NEETs, as the Organization for Economic Cooperation and Development calls them."

The idea is that, from a societal point of view, we might be just as happy — even happier — if young people are in postsecondary training, college, or graduate school rather than in work.

The NEET tells us in one number just how many young people are disconnected from both work and school (including training programs). As the NYT notes:

"In Spain ... 23.7 percent of those 15 to 29 have simply given up [on school or work] ... In France, it’s 16.7 percent — nearly two million young people who have given up; in Italy, 20.5 percent."
Read more...

 

 
CEPR News November 2012 Print
Written by Dawn Lobell   
Friday, 30 November 2012 14:05

The following highlights CEPR's latest research, publications, events and much more.

CEPR on the So-called “Fiscal Cliff

CEPR weighed in on the “Fiscal Cliff” debate, reminding everyone that – as CEPR Co-director Dean Baker noted in this Guardian column – “the Fiscal cliff hysteria is manipulated by self-serving deficit hawks”. Dean also debunked the fiscal cliff scare story in this piece in Salon; this one in the Huffington Post; this op-ed in Al Jazeera; this article in Politico; thesethreeposts in the CEPR Blog and several posts, including this one and this one in his own blog, Beat the Press. Here is Dean on the Nightly Business Report debating the fiscal cliff with Douglas Holtz-Eakin, and he also set the record straight on CNBC’s The Kudlow Report…twice.

In this op-ed for the McClatchy News service that appeared in Newsday, the Providence Journal and several other newspapers across the country, CEPR Co-director Mark Weisbrot reminds everyone that employment, not deficit reduction, should be top priority for the government. CEPR Domestic Communications Director Alan Barber answered no to the question “Is Going Over the 'Fiscal Cliff' Necessarily the Worst Outcome?” for U.S. News and World Report’s Debate Club, and Senior Economist Eileen Appelbaum wrote this critique of a story that appeared on NPR featuring the CEO of Ceasar’s calling for cuts to Social Security. And CEPR’s Director of Domestic Policy Nicole Woo corrected fiscal cliff notes in this segment of Let's Talk About It! 

In this CEPR blog post, Dean explains, again, that the high deficits of the last 5 years are the result of an economic collapse, not profligate spending or huge tax cuts. Dean also published a paper for the New America Foundation, titled “Debt, Deficits, and Demographics: Why We Can Afford the Social Contract,” that addresses inaccurate thinking on short terms deficits and shows that horror stories about long term debt are almost entirely a function of projected increases in health care costs.

Read more...

 

 
Economics 101 for the Debt Fixers Print
Written by Dean Baker   
Friday, 30 November 2012 06:33

Many economists have pointed out that the Campaign to Fix the Debt and the rest of the austerity crew seem badly confused about basic economics. The most obvious item that they seem to be missing is that large current deficits are the result of the downturn that was caused by the collapse of the housing bubble.

We did not go on a sudden spending spree and tax cutting orgy in 2008. The deficits exploded from a completely sustainable 1.2 percent of GDP in 2007 to levels close to 10 percent of GDP in 2009 and 2010 because the downturn sent tax collections plummeting and increased spending on programs like unemployment insurance. Were it not for the downturn, the deficits would again be relatively small. Rather than posing a risk to the economy, the deficits are sustaining demand and growth, keeping unemployment lower than it would otherwise be.

The markets understand this, which is why investors are willing to lend the United States trillions of dollars at interest rates that are just over 1.5 percent. But this is far from the only problem with the debt fixers' understanding of the economy.

While they obsess about the debt as imposing a burden of future interest payments on our children (who will also receive these future interest payments), they somehow manage to ignore other commitments that the government is making for the future. The most important one is patent and copyright monopolies. While these payments do not appear in the government's books, they imply enormous flows of income from the rest of us to patent and copyright holders.

In the case of pharmaceuticals alone, patent monopolies are likely to lead to a transfer of more than $3 trillion over the next decade from consumers to the pharmaceutical industry. If we added in flows of income stemming from patents and copyrights in other sectors, like crop seeds, software, recorded music and video material, the sums would almost certainly be 2 or 3 times as large. In other words, it is real money.

Furthermore, there can be real trade-offs between the official debt and the patent rents. Suppose that we could have the government spend $500 billion in upfront research on developing new drugs (in addition to the $300 billion we are already projected to spend) to replace the research by the industry. If we could then buy all drugs at the free market price we would save ourselves $2.5 trillion over the decade ($3 trillion in reduced drug costs, minus the $500 billion in government research spending). 

While that policy would be a clear winner to folks who know economics, it would flunk in the debt fixers' calculations since they only pay attention to the $500 billion addition to the government debt, not commitments like providing patent monopolies for long periods of time. Now if someone could just teach this simple point to the debt fixers then maybe they would be using their millions to push better policy.

 

 
How to Get $500 Million: Play Powerball or Become a CEO Print
Written by Nicole Woo   
Wednesday, 28 November 2012 16:20

Across the nation, lines are winding down streets and around corners as folks wait to buy a ticket for Powerball's $550 million dollar jackpot, the second-largest in U.S. history.  While that seems like an unimaginable amount of riches for typical Americans, it's what many corporate CEOs regularly make in a just few years.

The Institute for Policy Studies (IPS) recently exposed "The CEO Campaign to ‘Fix’ the Debt: A Trojan Horse for Massive Corporate Tax Breaks" and listed the taxable compensation of the CEOs involved in it.  The list is topped by Leon Black of Apollo Global Management, a private equity fund. He made $215 million last year and was in the news for spending $120 million on a single famous painting.

IPS also released "Executive Excess 2012: The CEO Hands in Uncle Sam's Pocket," highlighting the corporate executives who've reaped the highest pay.  That list is led by James Mulva of ConocoPhillips, who took home almost $146 million in taxable pay in 2011.

The Associated Press analyzed the compensation packages at S&P 500 companies to identify the 50 highest-paid CEOs. Number one on that list is David Simon of the Simon Property Group, who made $137 million last year.

And Apple's Tim Cook recorded the highest compensation on record in the Wall Street Journal's annual CEO pay survey. In August 2011, he was awarded a $378 million annual pay package, mostly from a million shares of Apple stock. Since then, Apple's share price has exploded, so that part of his pay is today worth $583 million (more than the Powerball jackpot!).

Add up the pay of any three of the CEOs above, and you get about $500 million (or much more) for just one year of work. They don't need Powerball to get hundreds of millions of dollars; they just need to keep being CEOs.

While it's nice to dream about what we'd do if any of us won the lottery, this is also a good day to think about how corporate CEO pay packages have risen so unbelievably sky-high.  And while you're at it, check out the IPS reports for concrete proposals to bring them back to down to earth.

 
Sign Language from the Invisible Hand? How Do We Know That We Need to Reduce the Deficit by $4 Trillion Over the Next Decade Print
Written by Dean Baker   
Monday, 26 November 2012 22:10

Millions are no doubt wondering how we know that the government has to reduce deficits by $4 trillion over the next decade. This appears to be the magic number that underlies the budget discussions between President Obama and the Republicans in Congress, and it is widely accepted by Serious People everywhere, but where did this magic number come from?

One place where it gained prominence was in the report authored by Morgan Stanley director Erskine Bowles and former senator Alan Simpson, the co-chairs of President Obama's deficit commission. However, many other people have touted this $4 trillion number as the appropriate limit on the country's debt burden.

The attachment to a particular debt number seems more than a bit peculiar for a number of reasons. The first and most obvious is that the financial markets don't seem the least bit bothered by the current levels of debt and prospective future levels of debt. They presumably understand what most people in the Washington policy debate do not, the high deficits of the last 5 years are the result of an economic collapse, not profligate spending or huge tax cuts. This is why the interest rate on long-term Treasury bonds is at post-war lows.

The markets recognize that if the economy recovered, then deficits would again be at manageable levels. In the mean time, low interest rates reflect the fact there is little demand for capital.

However beyond the economic facts, the Washington debt mongers also seem confused on what the debt means. The proximate burden of the debt on the government is the amount of interest that we pay. Instead of being very high, this is in fact near a post-war low. 

Read more...

 

 
The States and Full Employment Print
Written by John Schmitt   
Monday, 26 November 2012 13:45

State governments spend a lot of money — usually in the form of tax breaks for companies — trying to bring jobs to their states. The problem with this kind of race-to-the-bottom strategy is that the most they can hope to achieve is to shift jobs from one state to another, leaving total national employment unchanged.

When it comes to state employment, the real drivers of success or failure lie almost completely beyond the reach of state governments. The overwhelming determinants of state employment are monetary and fiscal policy, which are set entirely at the federal level.

The chart below helps to illustrate the point. The third and longest bar in the figure shows the unemployment rate in each of the 50 states and the District of Columbia in 2010, the worst year in the labor market in the recent recession. Not only was the overall unemployment rate high (9.6 percent), but the range in unemployment rates across states was large – from under 4 percent in North Dakota, to over 12 percent in California, Michigan, and Nevada.

Click for larger version

state-unemployment-2012

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Part-time Work Isn't Driving Inequality Print
Written by John Schmitt and Milla Sanes   
Tuesday, 20 November 2012 15:00

parttimeblog

In 2012, about one-in-five workers is in a part-time job (following the Bureau of Labor Statistics definition of working fewer than 35 hours per week). The rate is higher for women (26.1 percent in October 2012) than for men (13.5 percent), but what is most striking about the chart below is the trend over time in part-time work. Over the last three decades, as economic inequality has been climbing, the overall rate of part-time employment (the top line in the chart) has barely changed.

Before the jump in part-time employment in 2008, which was entirely a function of the big increase in involuntary part-time employment related to the Great Recession, part-time employment was actually on a slow decline. Given that overall part-time employment was becoming less important for almost 30 years (voluntary part-time work was flat, but involuntary part-time work was on the decline), it is hard to argue that part-time work has played an important role in rising inequality.

What is more, as the chart shows, part-time work was rising between the mid-1960s and 1980, a time when economic inequality was basically flat.

The problem facing workers isn't a rise in part-time work. The problem is the increasing precarity of full-time work.

 
Hostess: Challenges Facing Unions when PE Doesn't Deliver Print
Written by Eileen Appelbaum   
Tuesday, 20 November 2012 11:19

If there is one thing about the Hostess failure that everyone can agree on, it’s that – in the words of Term Sheet’s Dan Primack – the bakery company’s management was ‘dunderheaded.’ When Ripplewood Holdings bought Hostess out of bankruptcy in February 2009, the company was in danger of failing. Unable to adapt to consumer demand for healthier products and slow to adopt new technologies, Hostess had been in trouble since the early 2000s and in bankruptcy protection since September 2004. As it prepared its takeover offer, Ripplewood presented itself as a hot shot private equity firm that could turn around the ailing company and save its iconic brands. Both Hostess’ largest creditors and its major unions were persuaded.

Ripplewood negotiated major concessions with the bakery company’s two major unions – the Teamsters and the Bakery Workers. Silver Point Finance and Monarch Alternative Capital, Hostess’ largest creditors, set the terms under which they would lend Ripplewood money. And Ripplewood knew the dimensions of the huge debt burden Hostess would carry as it emerged out of bankruptcy. But Ripplewood had a credible plan for saving Hostess that it believed would work – and that it sold its creditors and unions on.

For all the fanfare, Ripplewood failed miserably in implementing the turnaround and misfired badly on execution. The company was poorly managed, failed to introduce successful new products, did not invest in new equipment and technology, and faced falling demand for its products and rising debt and interest payments. Managers took steps to line their own pockets as the company grew increasingly troubled. The company cited sales revenue of $2.5 billion in 2011 as proof that demand remained strong and it had done a good job, but failed to mention that sales revenue was down 11 percent from 2008 and 28 percent from 2004.

Read more...

 

 
No Cupcake: Workers Turn Down Bad Deal from Hostess Print
Written by Dean Baker   
Friday, 16 November 2012 17:33

There have been a number of news stories about the closing of Hostess’ factories and plans to liquidate the company in the wake of the refusal of one of its unions to accept reductions in pay and benefits and other concessions. It appears as though this will leave Hostess’ 18,000 workers without a job by the end of the year.

While this is certainly a bad story for the workers, it is not clear that they had a better route available to them. It is important to understand a bit about the history of Hostess in assessing whether the workers and their union made the right call.

Hostess has been relying on pretty much the same mix of products for decades. While other companies have sought to adjust to changing consumer tastes, Hostess still gets the vast majority of its revenue from a relatively small number of products that it has been selling in largely the same form since the sixties. This failure to innovate was the main reason that the company first went into bankruptcy in 2004.

Hostess remained in bankruptcy for five years until it was brought out of bankruptcy in February of 2009 by Ripplewood Holdings, a private equity company. Remarkably, it exited bankruptcy with nearly $670 million in debt, almost 50 percent more than the $450 million it owed when it went into bankruptcy.

Usually companies use bankruptcy to shed debt. With Hostess the opposite was true. This meant that Ripplewood was taking a heavily leveraged gamble. If the company survived, it would get a very high return on its investment. However there was a strong likelihood that the company would not be able to make it given its extraordinary debt burden and the weakness of the economy.

Read more...

 

 
Labor Market Policy Research Reports, November 10 – November 16, 2012 Print
Written by Mark Azic   
Friday, 16 November 2012 17:13

Here’s a roundup of labor market research reports released in the past week:

Center for American Progress

Congress Should Extend Emergency Unemployment Benefits

Sarah Ayres

Ensuring Benefits Parity and Gender Identity Nondiscrimination in Essential Health Benefits

Kellan Baker and Andrew Cray

There are Significant Business Costs to Replacing Employees

Heather Boushey and Sarah Jane Glynn

Center on Budget and Policy Priorities

Pulling Apart: A State-by-State Analysis of Income Trends

Elizabeth McNichol, Douglas Hall, David Cooper, and Vincent Palacios

Political Economy Research Institute

The Rich Get Richer: Neo-Liberalism and Soaring Inequality in the United States

Tim Koechlin

Wage-Led Growth: Theory, Evidence, Policy

Englebert Stockhammer and Özlem Onaran

 
Help CEPR Educate the Public on the Real Issues Print
Written by Dawn Lobell   
Friday, 16 November 2012 12:45

As the holiday season approaches, CEPR decided that the best gift we could give would be to offer a free Econ 101 class to all those in need.  And since there are so many in need, we had a hard time deciding where to begin…

Erskine Bowles gets an F

We decided to start with the deficit hawks, that group of powerful elites who have continuously misled the public, the press, and the policymakers on the true nature of U.S. debt (while also convincing millions of Americans that Social Security won’t be there for them”).

With your help, we can teach the likes of Erskine Bowles, Alan Simpson, Peter Peterson and the rest of the class of 2013 these basic economic concepts:

Read more...

 

 
Shameless CEO Campaign Sends Debt-Laden Caesar’s CEO to Lecture the 99% on Fixing Debt Print
Written by Eileen Appelbaum   
Thursday, 15 November 2012 12:40

If there is one thing the recent presidential election made clear, it is that the 1% have no shame. So it’s no surprise that CEOs are drumming up "fiscal cliff" hysteria to protect their wealth. Their campaign to ‘Fix the Debt’ wants to retain the Bush-era tax cuts for the wealthy and expand tax breaks for corporations while fixing the debt through a Medicare/Medicaid system that "spends considerably less."  But choosing Caesar’s Entertainment CEO Gary Loveman to deliver their message on NPR’s ‘All Things Considered’ demonstrates once again how shameless the very rich are in their contempt for the 99% who depend on Medicare and Medicaid – and for the ‘elites’ who get their news from NPR. As for NPR, let’s give folks there the benefit of the doubt and just say they are clueless.

The CEO campaign sent Loveman to impress upon the rest of us the importance of fixing the debt so CEOs wouldn’t be forced to lay off millions of us and to make sure we understood the necessity of preserving tax breaks for the ‘job creators.’ You might think they would have chosen a CEO who leads a company that has created value for the U.S. economy and jobs for American workers. But you would be wrong.  Gary Loveman is the CEO of a company loaded up with debt by private equity that has ripped off its creditors, disappointed its shareholders, and laid off workers.

Loveman was CEO and President of Harrah’s Entertainment (now known as Caesar’s Entertainment Corporation), the world’s largest casino company with 30,440 unionized employees when it was acquired by private equity firms, the Apollo Group and the Texas Pacific Group (TPG) in 2006. The PE firms paid $90 a share to take the company private. By June 2007, the casino company’s long-term debt had more than doubled to $23.9 billion, resulting in an interest bill of $2.1 billion. Piling up debt magnifies private equity’s returns in good economic times, but it raises the risks of default and downsizing for the acquired companies when times are tough. Caesar’s Entertainment struggled under its debt burden when the recession hit. The company cut staff, reduced hours, outsourced jobs and scaled back operations.

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